blockchain, token economy and regulation · token and tt-service provider act: • regulation of...
TRANSCRIPT
OFFICE FOR FINANCIAL MARKET INNOVATION PRINCIPALITY OF LIECHTENSTEIN
Lunch time talk - EFTA Court
June 19th 2019
Dr. Thomas Dünser
Blockchain, Token Economy and Regulation
Personal Background
• 2019-…: Director of the Office for Financial Market Innovation
• Project Leader of «Blockchain-Act»
• 2013-2019: Senior Advisor to the Prime Minister of
Liechtenstein
• Before: Private Sector (Banking, Industry, Consulting)
• MSc. and PhD in Engineering (ETH Zurich)
Office for Financial Market Innovation
• Dynamical technological developments vs. statical, backward looking regulation
• Since 2013: Innovation Framework (www.impuls-liechtenstein.li) => ability of government and authorities to cope with private sector innovation – Regulatory Lab (Financial Market Authority FMA)
– Bottom Up innovation process for the business framework
• Role of SFI (Office for Financial Market Innovation)
– to foster the innovation framework
– first point of contact for innovative companies
– development of the business framework (Financial Market)
Use of Blockchain?
• digital information is easily copied
• Blockchain makes possible that digital information belongs to one person and may be transferred from one person to another
• Blockchain makes the «digital original document» possible
Distributed Ledger Technology (Blockchain)
• A transaction ledger that is secured by
– Distribution on many computers (decentralized)
– Cryptography
– Verification Algorithms
• DLT allows to
– secure digital information
– link digital information to an address
– securely transfer digital information to another address
Distributed Ledger Technology (Blockchain)
• Key Aspects
– Integrity and trustworthyness without intermediary
– direct and fast transactions
– low transaction costs
– some Blockchains have a high energy consumption
– some Blockchains have low transaction capacity
• Example of Blockchains:
– Bitcoin, Ethereum, Ripple, Monero, Hyperledger, aeternity
Current Use of «Token»
Security Token
Right to use a software
Utility Token
(Nothing) Cryptocurrency
Crypto-Asset
Token = functional, not technical
Digital Euro Stable Coin
Current Applications of Token
Stable Coin
Cryptocurrency
Utility Coin ICO
Paym
ent
Trad
ing
Pla
tfo
rms
Pri
vate
Inve
stm
ent
Fin
anci
al S
ervi
ces
Security Token STO
Digital Economy
Use Case: Tokenization of physical items
Exhibition Right
Pledge Right
Copyright
Property Right
proof of ownership
digital contract
selling transactions
lombard loan
portfolio management
insurance
transportation chain
How does it work? «Plegde Right Contract»
Token with:
• Ownership rights
• Proof of ownership
• Proof of origin
• Proof of value
«pledge right» Token «currency» Token
Digital contract
check
transfer
transfer
blo
ck
Digital Economy
Use Case: Real Estate
Property Right
Usage Right
Pledge Right
proof of ownership
mortgage loan
rental contract
warranty
access rights
Digital Economy
Use Case: Car
Pledge Right
Property Right
Usage Right
leasing
car sharing
car rental
insurance
car investments
theft control
Digital Economy
Use Case: Digital Beer Voucher
Beer Voucher
Festival
Restaurant
Bar
General Economic Services
Functional Overview over Token Economy
Token Creation
Custody
Transfer
Public Sale of Token
Asset Management
Further Financial Services
Cu
rren
cy
Secu
rity
Met
als
Rea
l Est
ate
Raw
s
Item
s
Pate
nts
Mu
sic-
righ
ts
Trad
e M
arks
Soft
war
e ri
ghts
Mac
hin
es
Dev
elo
p-
men
t A
id
«B
eer-
Vo
uch
er»
Uti
lity
Co
ins
(EM
PTY
)
«Bitcoin»
Crypto-Exchange
ICO
General Economic Services
Application of the Liechtenstein Blockchain-Act
Token Creation
Custody
Transfer
Public Sale of Token
Asset Management
Further Financial Services
Cu
rren
cy
Secu
rity
Met
als
Rea
l Est
ate
Raw
s
Item
s
Pate
nts
Mu
sic-
righ
ts
Trad
e M
arks
Soft
war
e ri
ghts
Mac
hin
es
Dev
elo
p-
men
t A
id
«B
eer-
Vo
uch
er»
Uti
lity
Co
ins
(EM
PTY
)
Liechtenstein Blockchain-Act
Service Providers Private
Role of Service Providers
Creation
Deposit
Transfer Token Exchange Platforms
Wallet-Provider Cold Storage Provider
Token Creator
peer to peer transaction
self deposit
self programming
Role of financial services
WA
LLET
Bank Lombard Loan
Trader Order
Asset Manager
Mandate
Share
Bond
Share
Share
Derivative
Bond
T
T
T
T
T
T
T Wallet Pledge Right
T Wallet Property Right
T Transaction Right
T Portfolio Management Right
Role of financial service providers: fragmentation of the value chain
Token Creation
Deposit
Token Transfer
Public Sale of Token Asset Management
Fund Business
Wallet
Credit Business
Insurance Business
Exchanges
Trading Services
Legal classification of Token
Cryptomoney T
Crypto-Asset T
? Representation of a right T
«Token Container Model»
Currency
Security
Voucher
Warranty
Car
(EMPTY)
«Right»
Representation of a Right on a
Blockchain-System T
Legal perspective on Token
• from a technical perspective, a Token is only digital information («1001100111»)
• character of an item (transferable, ownership…)
• not a physical item (FL - Property law (Sachenrecht) is not appropriate)
=> Token is introduced as a new legal element in Liechtenstein legal framework
“Token”: a piece of information on a TT System which: 1. can represent claims or rights of memberships against a person, rights to property, or other absolute or relative rights; and 2. is assigned to one or more TT Identifiers;
Real World Blockchain-System
Token and «real world»
T «Right»
Synchron-isation
share • legal transfer • share registry • limitations • voting rights real estate • land registry • limitations physical item • legal ownership • transfer • …
role of token «owner» • is he/she the legal owner
of the right? legal effect of Token transfer • is the new owner the legal
owner of the right? Restriction of Token transfer • How can a Token holder
see restrictions? • In case of collision: which
system has priority? …
Fundamental questions about Token
• Can a Token be owned?
• Can a Token be «stolen»?
• Can a Token be transferred to a delegate? What are the legal implications?
• Can a Token be pledged?
• Legal protection of a Token «buyer» (good faith)
• Is it possible to cancel a Token?
• etc.
T
Legal Model «Disposal of Token»
Representation of right T
Security
Music licence right
Shop voucher
Guarantee right
Right to withdraw EUR
(NOTHING)
Ownership of property
Holder of the TT-Key
Delegate of the entitled person
Person entitled to dispose of the Token
TT-Identifier
«Public Key»
TT-Key
«Private Key»
Token- and TT-Service Provider Act: Civil basis
• Art. 5: Power of Disposal and Right of Disposal
• Art. 6: Disposal over Tokens
• Art. 7: Effects of Disposal
• Art. 8: Legitimacy and exemption
• Art. 9: Acquisition in Good Faith
• Art. 10: Cancellation of Tokens
Extract: Article 5
Article 5
Power of Disposal and Right of Disposal
1) The TT key holder has the power of disposal over the Token.
2) It is further assumed that the person possessing the power of Token disposal also has the right to dispose of the Token. For every previous holder of the power of disposal, it is presumed that he was the person possessing the right of disposal at the time of his ownership.
3) If someone is the holder of a power of disposal without wanting to be the person possessing the right of disposal, he can rely on the person from whom he received the Token in good faith is the person possessing the right of disposal.
Extract: Article 6
Article 6
Disposal over Tokens
1) Disposal is:
a) the transfer of the right of disposal over the Token; or
b) the justification of a securities or a right of usufruct to a Token.
2) Disposal over a Token requires that:
a) the transfer of the Token is concluded in line with the regulations of the TT System where a restricted in rem right to a Token can also be ordered without transfer, if this is apparent to third parties and clearly establishes the time of ordering;
b) the transferring party and the receiving party unanimously declare to transfer the right of disposal over the Token, or that they want to justify a restricted in rem right;
c) the transferring party is the person possessing the right of disposal pursuant to article 5; article 9 remains unaffected.
3) If a Token is disposed of without reason or a subsequent reason fails to exist, the revocation shall be accomplished in accordance with the provisions of the Enrichment Law (sections 1431 et seq. ABGB).
Delegation: Role of Service Providers
«Right» TT-Identifier TT-Key
Model 1: Deposit directly by the Person entitled to dispose of the Token
T
«Right» TT-Identifier TT-Key
Model 2: Deposit of Private Keys by Professional Service Provider
«TT-Key-Depositary»
T
«Right» TT-Identifier TT-Key
Model 3: Deposit of Tokens by Professional Service Provider
«TT-Token-Depositary»
T
Legal questions relating to delegation
• Case of Bankruptcy: What happens with Tokens and TT-Keys hold for a client? Are they part of the delegate’s own assets?
• What happens in case the delegate uses the Token in another way than agreed? (Misuse of the power of disposal)
• What legal proceedings are open to the entitled person? • The delegate has the full power of disposal!
Token and TT-Service Provider Act: • Regulation of Token- and TT-Key Depositary • Duty to clear separation of clients and own assets • Legal clarifications about the roles («right to dispose» and
«power of disposal»)
Tokenization of physical items
T EUR 800 Mio.
• Authenticity? • Value? • Origin (Criminal background)?
Token Economy • Is he really the owner? • Is the painting really available? • does the token really represents the property right? • Is the Token well programmed? • Am I really the legal owner of the painting after having bought
the Token?
Tokenization of physical items
Safe
Physical Validator T
Physical Validator • Interface between «real» world and blockchain • Ensures that the asset really is available
Token • Proof of Authenticity • Proof of Origin • Estimation of Value
Token Generator
Token Generator • Technical Correctness • Representation of right
Overview over the «Blockchain-Act»
• Legal definitions • Power of disposal and right to dispose of a Token • legal consequences of a Token transaction • collision principles
32
Civil law basis Token
Supervision of Service
Providers
Basic information
sheets
uncertificated rights
AML…
• Requirements to important service providers
• Registration
• Supervision
• Duty of publication of a basic information sheet
• Content
• Exemptions
• Dematerialized security
• digital security process
• Registry on Blockchain
• AML Duties
• Compliance with newest FATF-Standards / 5. EU-AML Directive
Status and Outlook
• Token und TT Service Provider Act TVTG – First Reading of the Act by the Parliament has taken place in June 2019 – Second Reading is planned in October 2019 – Entry into force is planned on: Dec. 2019 / Jan. 2020
• Important Milestone
– Legal Certainty for Token Economy – Guidelines for business activity – first step in a major development (digitalization)
• Ability to innovate will be crucial also for states
• Know-how about digitalization / technology in all state functions
will be important
Thank you for your attention